In the latest edition of the Power On newsletter, Bloomberg’s Mark Gurman outlined some of his expectations for how Apple will remain competitive in the App Store payment processing market. Late last month, a judge ruled that Apple’s 27% commission on external payments was illegal. Many large developers have already begun implementing their own payment processing systems.
Background
In the United States, where most of Apple’s App Store revenue is generated, developers are now freely allowed to utilize payment processors outside of Apple’s own, which subjects developers to a 30% fee (or 15% if you’re a smaller developer).
Previously, Apple did technically allow developers to implement their own payment processing system, though there were some contingencies:
- Developers had to include a “scare screen” warning users of the ‘risks’ of external payment processors
- And, developers needed to pay Apple a 27% commission, which essentially negated the point. Most payment processors charge a roughly 3% fee
Now, that’s all gone away, and many large developers have already begun jumping ship. Apple is appealing the court’s decision – but until then, alternative payments will run freely.
What Apple can do
Bloomberg’s Mark Gurman outlines the fact that the App Store is worth $20 billion a year to Apple, thanks to all of the revenue it generates from its 15-30% commission. Obviously, Apple would like to lose as little revenue as possible.
In order to “stay competitive”, Gurman suggests that Apple could pull the following levers:
- Double down on privacy and security, to encourage developers to stick around
- Change its commission rate
In regards to changing the commission rate, Gurman adds that he expects Apple will “need to do” it before too long.
Wrap up
I’d lean towards this report being more of a suggestion than a direct leak. That said, there is the simple fact that large developers are jumping ship, and in due time, more and more developers may leave the In-App Purchase ecosystem.
While Apple is appealing the court order, that could take a long time. And in the end, there’ll be plenty of lost revenue for Apple. It likely makes the most sense for Apple to lower its App Store commission as soon as possible to persuade US developers from ditching Apple’s built-in payment processor for In-App Purchases.
A lot of small to medium sized developers might not want to ditch the In-App Purchase if Apple drops its commission rate. After all, the ease of it all certainly makes it easier for users to spend money. Rather than potentially having to input your credit card details, you simply double click the side button.
My favorite Apple accessory recommendations:
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